Background information

Background information on the 2016 Federal Budget superannuation changes

On 3 May 2016, the federal treasurer Scott Morrison released the first federal budget of his career. Highlighting his inexperience, he announced retrospective super policies without consulting his backbench, and most importantly, without consulting the Australian public. His decision, along with his January 2017 Age Pension changes, nearly cost the Coalition the election, based on the feedback from SuperGuide readers about the impact of the super changes on their voting intentions. (Look what happened to former treasurer Joe Hockey when he got carried away by his role and failed to consult with his colleagues, or the voters, before announcing radical changes to the retirement plans of Australians – trying to lift the Age Pension age to 70 comes to mind. Note that raising Age Pension age to 70 years is still part of Liberal policy.)

Add the harsh Age Pension rules which took effect from January 2017, and you can expect the votes of older Australians had a huge impact on the close result at the 2016 Federal Election held on 2 July 2016, including the number of independents in the Senate, and will strongly influence the next election to be held in 2018 and or 2019 (see SuperGuide articles Treasurer Morrison’s ‘Retirementgate’ encourages Aussies to spend and take Age Pension and Retirement income and savings trap: 13 findings from Save Our Super’s paper).

Treasurer Morrison intended to make some radical changes to the super rules: the biggest super stinker being the immediate and retrospective lifetime $500,000 cap on non-concessional (after-tax) contributions. On 15 September 2016, the government announced that the $500,000 lifetime NCC cap was a dead duck (although he used different language to announce its demise, of course). The revamped non-concessional contributions cap, which has applied since 1 July 2017 is explained earlier in this article, but if you want greater detail on the revised annual NCC cap see SuperGuide article New $100,000 cap: Cut to non-concessional contributions cap.

Treasurer Morrison backtracking on the NCC cap was in response to the Treasurer consulting with Liberal MPs, and interest groups (and presumably also in response to the tens of thousands of emails from taxpayers, including SuperGuide readers). The federal government subsequently released three sets of exposure drafts during September and October 2016, which provided more detail on what we can expect with the new super policies.

The federal government also backtracked on another superannuation policy. In addition to delaying and expanding the harsher NCC cap, the government has also delayed the 5-year catch-up option for the annual concessional (before-tax) contributions cap. I explain all of the superannuation policies earlier in the article.

The Coalition government had planned to remove the work test for over-65s when making super contributions, but this was sacrificed when the government changed the retrospective $500,000 lifetime non-concessional contributions cap to a prospective $100,000 annual NCC cap.

The federal government, in its Tax System budget paper stated that: “A prosperous Australia needs a well-targeted superannuation system that supports and encourages all Australians to save and not be dependent on the Age Pension in retirement…”.

Looking at the policies announced in the 2016 Federal Budget (and now legislated), even with the 15 September 2016 compromises, I am not sure if those Australians keen to take responsibility for their retirement planning, via the superannuation system, will feel that supported or inspired.

The federal government also states: “Targeted tax concessions, combined with the changes the Government made to rebalance the Age Pension assets test in the last budget [for Age Pension change, see link at end of bullet list directly below], promote a more sustainable retirement income system”.

The federal government has also released the objective of superannuation, namely “to provide income in retirement to substitute or supplement the Age Pension”. At the time of writing, the objective of superannuation had not yet become law.